The Importance of creativity and Innovation for medium and long term Growth Dr. Charles G. Bienfait-SOLVAY SA Direction Centrale Recherche & Technology

The Importance of creativity andInnovation for medium and long term

Growth

Dr. Charles G. Bienfait-SOLVAY SADirection Centrale Recherche & TechnologyBruxelles

Conference/ May 7- 8, 2007 / AMSTERDAM 2nd Annual « MANAGING R&D for BUSINESS GROWTH » (in the Chemical Industry)

Jacob Fleming- Conf.Amsterdam –May 7-8 ,2007© SOLVAY SA – C.G.Bienfait

Topics

1. Introduction 2. Position of our Industry today(2005 results):

EU situation (from DTI) World position (from own graphs)

3. Medium & long term Growth versus creativity & innovation:

Relation with innovation Relation with R&D expenses Addition: a few ex. of SOLVAY ‘s innovations

4. Conclusion

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1. Introduction

Innovation and creativity= key challenges for EU for all industries.

Innovation is not only the task of R&D but of the all organization…..but R&D is a major partner (time to time forgotten

See next

3


4


Response Strategies (added by Porter and others)

INNOVATIONDeveloping new products & services

GROWTH

Increasing market share, acquiring more customers or selling more products

IMPROVE INTERNAL EFFICIENCY

To improve employee and customer satisfaction

ALLIANCESWorking with business partners to create synergy & provide opportunities for growth

CRMCustomer-oriented approaches, e.g. the customer is king (queen)

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2. Position of our Industry today (2005 results):

Before to go to Innovation/Growth,

WHAT IS THE BUSINESS SITUATION today OF THE CHEMICAL INDUSTRY ?

From DTI(UK)…for EU From own graphs….for World

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DTI

Two majors parameters: P1= « Value added per employee » (Productivity) P2= « Wealth creation efficiency » % (Output/versus

major inputs)

Performance of a group/compagnies linked to: Growth of VA Maintain highest P2 (the highest value)

(for definitions: go to: http://www.innovation.gov.uk/value_added/default.asp?page=60

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Chemicals Pharmaceuticals

8


SolvayBASFDSM

BAYER

9

0

20

40

60

80

100

120

140

160

0 50 100 150 200 250

P2 =VA/(employee costs + depreciation) %

P1=

VA

per

em

ploy

ee £

KPharma 2005 10


Own graphs/ C.G.Bienfait(from published data)

All relations related to % operating margin

(for chemicals: % operating margin (brut) (for pharma: % operating margin(net)

11

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

-10 0 10 20 30 40 50

% Operating margin (brut)

Chem.Sales (M $)

Total Chem Sales versus Operating margin (Brut)(*)(*)= sales - administ.expenses & cost of sales)

Chemical Industry 2005 results/first 50th

DowBASF

Shell

Exxon M.Total Dupont

SabicBP Bayer

China Petr

Formosa Plast

PraxairShin Etsu

SolvayChem Plast.

SOLVAY

12

4000

5000

6000

7000

8000

9000

10000

11000

12000

-5 0 5 10 15 20 25 30

Chemical Industry :2005 results for companies from Nr 21 till 50 Total Chem.Sales versus Operating margin(Brut)(*)(* = Sales- administr.expenses & cost of sales/sales)Chem.Sales M$

% Operating Margin (Brut)

Toray Chevron Phillips

ICIBasellShin-Etsu

DSMDICLanxess

BOC

PPGAsahi

Solvay Chem Plas

ENI

Air Prod.Praxair

Yara

Eastman

RelianceGEClariant

Sasol

RhodiaSyngenta

Celanese

Borealis

NovaLG

Ciba

Teijin

SOLVAY

13

4000

5000

6000

7000

8000

9000

10000

11000

12000

-5 0 5 10 15 20 25 30

Chemical Industry :2005 results for companies from Nr 21 till 50 Total Chem.Sales versus Operating margin(Brut)(*)(* = Sales- administr.expenses & cost of sales/sales)Chem.Sales M$

% Operating Margin (Brut)

Toray Chevron Phillips

ICIBasellShin-Etsu

DSMDICLanxess

BOC

PPGAsahi

Solvay Chem Plas

ENI

Air Prod.Praxair

Yara

Eastman

RelianceGEClariant

Sasol

RhodiaSyngenta

Celanese

Borealis

NovaLG

Ciba

Teijin

SOLVAY

14

05000

100001500020000250003000035000400004500050000

-10 0 10 20 30 40 50

Profit Margin (Net) % CA total

CA

Pha

rma

(mill

ion

U$

)PHARMA –Résultats 2005 CA en Million U$ versus Profit Margin(Net)

USA

EU

JP

Pfizer

GSKSanofi-Aventis

Novartis

Astra Zeneca J&J

MerckWyeth

BMS

Eli Lilly

Abbott

RocheAmgen

Boehringer Takeda

Astellas

Shering-Plough

Bayer

Isr.

Teva

Allergan

Schering

GenentechNovo

Eisai

Merck KG Forest

SeronoAkzo

Solvay

Gilead

UCB

SOLVAY

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3. Medium & long term Growth versus creativity & innovation:

Growth in relation with Innovation:

Innovation/creativity = essential to avoid loss of growth and profit ( « experience curve » = fatality going to lower profit)

Growth in relation to innovation in the two axes (technology-Products/markets)

See next graph

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Innovation processes

Core Competences

PresentPresent ExtendedExtended NewNew

Pres

ent

Pres

ent

NewNew

MARKETSMARKETS

TE

CH

NO

LO

GIE

ST

EC

HN

OL

OG

IES

€ € $$

Inn

ovative p

rojects

Acquisitions:Acquisitions:

« HT Engineering« HT EngineeringPolymers/BP-Polymers/BP-AMOCO »AMOCO »

« Fluoro « Fluoro Products /Products /AusimontAusimont

« FOURNIER « FOURNIER »»

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• For Innovation + R&D : to not forget :

Horizon 1

Horizon 2

Horizon 3Growth

Time and Level of Uncertainty

Mature businesses & markets

Major new growthBusinesses & markets

Portfolios ofExperiments forLong term growth

The three Horizons for Growth

Ref :« The alchemy of Growth » (Baghai, Coley and White)

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Growth & return in relation with R&D expenses ?

A lot of confusion : even in some « consulting group »

More R&D = more innovation ? More growth/return?

Need to take care of « time frame » in addition to other parameters :effectiveness/efficiency ,…..

Easy to see the relation in Pharma…more difficult in Chemicals see graphs

19


Pharma/drugs /Industries : 20


MEASURING UP: RESEARCH & DEVELOPMENT COUNTS IN THE CHEMICAL INDUSTRY

2001

• Chemical Industries

21

: Research & Development Counts in the Chemical Industry, the critical role of R&D to the chemical industry is quantified for the first time. With economic, bibliometric, and historical analysis, this study demonstrates that R&D has helped the chemical industry become a

major building block of the U.S. economy, growing steadily and becoming a world leader in scientific advances even in the face of

increasing global competition.

Key findings of this new study include:

On average, every dollar invested in chemical R&D today produces $2 in corporate operating income over six years – an average

annual return of 17% after taxes. Business performs better when public policy, including government

funding of R&D, is consistent. Publicly funded science makes significant contributions to new

technologies in the chemical industry. ….etc…

Ref: http://www.ccrhq.org/CCRNET/index.html

In Measuring Up

SOLVAY

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R&D return (all industries)(from U.S. Bureau of Economic Analysis ) September 28, 2006 :PRELIMINARY STUDY SHOWS

RESEARCH AND DEVELOPMENTCONTRIBUTION TO ECONOMIC GROWTH: Between 1959 and 2002, R&D investment accounted for

4 1/2 percent of growth in real GDP. Between 1995 and 2002, its contribution to real growth

rose to 6 1/2 percent. In comparison, businesses’ investment in commercial and

all other types of buildings accounted for just over 2 percent of real GDP growth between 1959 and 2002.

If R&D were included in the GDP as investment instead of as an expense, business investment would be 11 percent, or $178 billion, higher; and the 2002 national savings rate would be 16 percent instead of 14 percent.

http://www.bea.gov/bea/newsrelarchive/2006/rdreport06.pdf

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a few ex. of SOLVAY ‘s recent innovations

Epichlorohydrin with new process EPICEROL TM

New High productivity/High capacity of H202 process

NEUTREC ® process for flue gas cleaning

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Water consumption divided by 10

Epicerol™: Sustainable development

Chlorydric Acid

Glycerin from Renewable source (e.g.

from biodiesel ‘byproduct )

Epichlorohydrin

Chlorinated byproducts divided by 8

Utilization of chloridric acid vs chlorine.

Consumption of Cl divided by 2

22 Patents requests

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STRATEGY - WORK ON GROWTH

Chlorinated byproduct production

divided by 8

Water consumption divided by 10

Using HCl in spite of chlorine

Cl consumption divided by 2

Winner of “Pierre Potier Prize” for Innovation in Favor of the Environment

TAVAUX, France

EPICEROL® PROCESS

Pull out of oil chain

2007

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Contribution R&D= High Productivity H2O2 Process

High Productivity Réduction of investment by unit installed capacityHigher installed capacity by line :

1958 : 5 000 t/year 1992 : 60 000 t/year 2006 : > 200 000 t/year ?....230.000 in Antwerpen (PO-

BASF-DOW)Reduction of variable costs

g H2O2

kg Working Solution

Productivity =

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STRATEGY - WORK ON GROWTH

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*

* forecast

2008HYDROGEN PEROXYDE

ZANDVLIET, Belgium

• CAGR 1995-2005: > 6%

Sol

vay

kT/y

Partnership BASF/DOW for a new

plant of Propylene Oxide (HPPO)

World largest peroxyde plant of 230

kT/y under construction. Two

times the size of today largest plant

Based on Solvay high-yield production

process

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4. CONCLUSION:

Importance of creativity and innovation for growth

Do not forget R&D …one of the main source of innovation for growth!

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© 2005, SOLVAY SASOLVAY

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THANK YOU

Documents

The Importance of creativity and Innovation for medium and long term Growth Dr. Charles G. Bienfait-SOLVAY SA Direction Centrale Recherche & Technology